In the face of increasingly strict regulatory requirements in the cryptocurrency industry, Binance is taking measures to reduce counterparty risks. According to the Financial Times, Binance has allowed some large traders to store their assets in independent banks such as Sygnum Bank in Switzerland and Flow Bank.
The operational model of cryptocurrency exchanges, which serve multiple roles such as trading platforms, custodians, and lenders, has always been a concern for regulatory authorities. This concern has been further amplified, especially after the FTX incident exposed the unauthorized use of customer assets.
According to reports citing insiders, Binance has started taking measures by allowing some large traders to store their assets in independent banks such as Sygnum Bank and Flow Bank. Previously, Binance customers could only choose to hold their assets on the exchange or through custodian company Ceffu.
Sygnum Bank, which recently raised $40 million in funding, stated that it is providing services to its major institutional clients to separate custodial and counterparty risks based on the needs of numerous customers. The product is currently in the testing phase and is preparing for a full launch. Flow Bank has not commented on this matter.
Is Ceffu associated with Binance? Last year, US regulatory authorities maintained a reserved attitude towards the custodian company Ceffu, describing it as a “mysterious entity associated with Binance.” The person in charge of a major cryptocurrency hedge fund that has been using Ceffu for fund custody responded to this by emphasizing that Ceffu’s corporate structure is independent of Binance. Ceffu explained that:
Binance: Developing a tripartite solution two years ago
According to reports, Binance stated that they had already begun exploring and developing tripartite banking solutions that cover Binance, its customers, and custodian banks before counterparty risk became a widely discussed issue in the industry. Although Binance did not disclose the specific names of the cooperating banks at that time, they emphasized that counterparty risk is a common concern of the entire cryptocurrency industry, not just limited to Binance itself.
Counterparty risk refers to the risk that exists in the trading process, namely the possibility that the counterparty may fail to fulfill contractual obligations. In traditional finance, different independent entities usually provide services such as trading venues, custodianship, and lending to reduce this type of risk. The role of custodian banks is to securely safeguard customer assets and ensure their safety.
If the report by the Financial Times is true, this move reflects Binance’s efforts as an industry leader to enhance the security measures of customer assets. This not only increases trust but also helps improve overall regulatory compliance in the industry.
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